NFT Market Collapsing: 2 Highly Possible Reasons

NFT Declining

Interest in non-fungible tokens (NFTs) has hit a low point after a prolonged upward trend and according to Google trends, the interest in NFTs has dropped by over 70%.

Other sources also show that the NFT market is decline fast. The reason for this could be the recent slump in the crypto market. However, there are other possible reasons for the loss of interest. And this article explains the possible reasons for the drop and the future.

Google Trend Shows Decline

Image: Google Trends

At the beginning of the year, the Google Trend value of Non-Fungible Tokens was still at 100. In May, it dropped to 26. The Google search query value is represented with a scale between 0 and 100. Here, 0 corresponds to no interest and 100 to very high interest. According to this year’s evaluations, NFTs were still among the most popular topics in January. In the meantime, there seems to be hardly any interest.

The reasons for the loss of interest

There could be several reasons for the decline in interest. But the 2 most important reasons that could be attributed are –

(1) Crypto Slump: The most obvious is the recent crypto slump. Cryptocurrencies have suffered an immense drop in value due to current world events. Bitcoin peaked in November 2021, but after Russia’s invasion of Ukraine, its value dropped drastically to less than half of its price. As a result, some users lost motivation to trade cryptocurrencies. Since NFTs are traded on a blockchain just like cryptocurrencies, they also suffered a setback.

Already in the first months of this year, the NFT market was declining. This is shown by various market data from the NFT ranking platform DappRadar and the blockchain analysis platforms Nansen and Dune Analytics. However, these also show that the number of active users is not stagnating.

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(2) Environmental Cost: Another reason lies in the environmental costs associated with minting cryptocurrencies. Minting is the process of converting an NFT from a digital file into a crypto-collectible. Keeping the NFT market running requires a large amount of computing power, which contributes significantly to global warming. As investors pay more attention to sustainability these days, the magnitude of climate change is a reason for them to stop investing in NFTs.

As novelties are quickly and readily adopted in the digital world, interest increases significantly initially. It is therefore predictable that interest will decline again over time. However, the fact that interest has fallen by more than 70% makes it clear that the usual course of interest in a new invention can hardly be solely to blame. It is reasonable to assume that all the causes taken together explain a large part of the decline in interest.

The future for NFTs

Non-fungible tokens are still a very young market. It is hardly possible to avoid fluctuations in value. In general, the acceptance of NFTs continues to increase. Therefore, it is conceivable that interest will increase again in the future. More and more companies and institutions are finding a way to incorporate NFTs into their business model. Accordingly, the market will continue to grow in the future and user interest may be reignited by new developments. In the future, there will be further fluctuations and phases in which the growth of NFTs slows down and interest wanes. It won’t be possible to prevent this entirely. As long as something innovative keeps coming onto the market, the risk of another slump is rather low.

There was already a downward trend in NFTs in June 2021. Experts pointed out that pent-up demand may have driven the digital collection craze. Rising prices of cryptocurrencies allowed money to accumulate. The pile-up caused a large increase. After it cleared, interest rates inevitably fell again. This is an example of how quickly interests can rise and fall again.

Conclusion

The exact reasons for the NFT slump and loss of interest are not fully understood. It is likely that current world events have a major impact on the crypto and NFT markets. However, the normal course of a new technological invention, where interest simply ebbs after a period of enthusiasm, is also a very likely motive for the loss. It will take new, innovative inventions for the NFT sector to regain and sustain interest. As more and more companies jump on the NFT bandwagon, a resurgence is guaranteed. However, it cannot be ruled out that there will be renewed declines in the future. That is simply the natural process of developments.

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